Spillover effect

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This article is about the economic concept. For spillover effects in other contexts, see Spillover.

In economics, spillover effects are economic events in one context that occur because of something else in a seemingly unrelated context. For example, externalities of economic activity are non-monetary effects upon non-participants. (Odors from a rendering plant are negative spillover effects upon its neighbors; the beauty of a homeowner's flower garden is a positive spillover effect upon neighbors.)

In the same way, the economic benefits of increased trade are the spillover effects anticipated in the formation of multilateral alliances of many of the regional nation states: e.g. SARC (South Asian Regional Cooperation), ASEAN (Association of South East Asian Nations).

In an economy in which some markets fail to clear, such failure can influence the demand or supply behavior of affected participants in other markets, causing their effective demand or effective supply to differ from their notional (unconstrained) demand or supply.

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